Musk details a few nodes in production that had been causing trouble.

Share this story

Since Tesla's Model 3 production began in July 2017, the company's quarterly financial results have been very alike. Has Tesla produced the number of cars it said it would last quarter? (No.) Is Tesla burning through a whole lotta cash? (Yes.) Is Tesla still making progress on pushing out cars? (Yes.) Will Tesla be in the black again ever? (CEO Elon Musk offers a date one or two quarters into the future.)

Further Reading

Such is the case today. From a previous press release, we knew that in the first quarter of 2018, Tesla did not reach its stated goal of 2,500 Model 3s off the line per week. But it got close enough that investors weren't scared off, delivering 9,766 Model 3s and hitting just north of 2,000 such vehicles in the last week of the quarter. In today's financial statement (PDF), the company said it held that weekly number for two more weeks before stopping production in mid-April to "further increase production."

On the accompanying call, Musk detailed some of the changes that had been made at the factory to speed along Model 3 turnover. "We did go too far on the automation front and automated some very silly things," he said.

One example the CEO offered: originally the Model 3 included "fiberglass mats" of fluff on the top of the battery pack, and the company had a "FluffBot" that would pick up fluff and place it on the battery pack. "Machines are not good at picking up fluff; human hands are very well suited for that," Musk said, "FluffBot would frequently just fail to pick up the fluff." Tesla ended up testing whether the fluff made any difference in cabin noise, found that it did not, and dispensed with the FluffBot.

Musk also said that, in some cases, the Model 3's manufacture process was over-generalized or added unnecessary steps. The CEO said, currently, the battery pack is no longer a bottleneck for production: it's churning out about 3,000 Model 3 packs per week, and the time to produce a battery pack has decreased from 7 hours to 70 minutes. Now, Musk said, general assembly is the issue.

Despite all this, Tesla is clearly not giving up on making its factories increasingly automated. "In the end, this is all about having factories that are producing the world's highest-quality cars as quickly and as cost-effectively as possible," its financial statement said, "and with as close to zero injuries as we can possibly get. Our automation strategy is key to this, and we are as committed to it as ever."

Still, the company showed evidence in its financial letter of hedging on its promise to produce 5,000 Model 3s per week by the end of the second quarter of 2018. "We continue to target Model 3 production of approximately 5,000 per week in about two months, although our prior experience has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time because of the exponential nature of the ramp," the company wrote in its Wednesday financial statement.

The bottom line(s)

Tesla is also still burning through piles of money. The company's net loss in Q1 was $785 million, with $710 million of that attributable to shareholders. Last quarter, Tesla's loss attributable to shareholders was $675 million. All this is on top of record revenues for the company—just under $2.6 billion this quarter in automotive sales alone compared to just over $2.4 billion last quarter and slightly more than $2 billion in Q1 2017. If revenues generated by auto leases, Tesla's solar and battery businesses, and other Tesla services are included, the company made $3.4 billion in Q1 2018 (but it spent more than it made).

In its statement today, it seemed that a lot of the cash Tesla has used is going to upgrading its facility for faster Model 3 production—the same kind of spending the company had to do in advance of the Model S and Model X.

Tesla purchased a German automation engineering firm in 2016 to help it build out its Model 3 production lines. The company said in February that machinery from that firm had been ordered and was on its way to Tesla's factories. Tesla reiterated that in its press release today, saying: "We now expect to reach a [battery]-module production rate of 5,000 car sets per week even before we install the new automated line designed and built by Tesla in Germany. Still, once installed, this new automated module line should significantly lower manufacturing costs."

Automation

Tesla has struggled with its Autopilot endeavors in recent months, after a fatality and questions surrounding when "full automation" would be ready for users. In today's financial call, Musk said that "full autopilot" would be ready "from a technical standpoint... by the end of next year." However, he accused journalists of overhyping fatalities, causing regulators to balk at approving new systems.

"The thing that's tricky about autonomous vehicles is it doesn't reduce the fatality rate to zero," Musk said, adding that millions of deaths happen in non-autonomous cars per year, but they rarely end up in headlines. "It's really incredibly irresponsible of any journalist with integrity to lead people to believe that a Tesla with autonomy is less safe." [Editor's note: A fatality incurred with new technology will always be news.]

Still, Musk added that Tesla will start publishing quarterly safety statistics. He also noted that he didn't think people were getting in accidents because Tesla's system is overselling its capabilities with the name "Autopilot."

"When there is a serious accident... people think the driver thought the car was fully autonomous." Instead, Musk said, "it is almost always, in fact maybe always, that it is an experienced driver."

The other businesses

For the most part, Musk shied away from giving too many pronouncements on Tesla's other endeavors. He noted that Tesla had about 2,000 reservations for Tesla Semis. ("It's not really something we've tried to sell," he said, adding that a fair criticism at this point is Tesla's failure to turn a profit, which the company is trying to fix this year.)

Musk also said capital investment in Model Y production would not be significant until 2019. He poked fun at a new design-patent lawsuit that was filed against Tesla yesterday in Arizona. He said it was a "laughable lawsuit from some company called 'Nikola.' They're, like, suing us for the way the truck looks, which is absurd; nobody's buying a Tesla for the way that it looks." Musk also, at one point in the call, said Tesla's Semi would get "more than 500 miles" of range.

In response to a question about whether there would be any value in Tesla working with SpaceX's satellite broadband endeavors, Musk said, "There’s interesting things you could do. The car's got a lot of computing power... I haven't really thought about it, but probably there is."

Finally, Musk said that he didn't really care about publishing Model 3 production rates before the end of the quarter to satisfy day traders. "I am not here to convince people to buy our stock. Do not buy it if you think volatility is scary," the CEO said. With Tesla falling four percent in after-hours trading as of this writing, some stock pickers may have taken Musk's advice.